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A law to mesh social and economic policy?

Can socialandeconomic be one word? The government thinks so. Not literally, of course, but in its policy approach.

It is, for example, considering mandatory independent reporting of social indicators, which would pick up adverse social impacts of economic policies and potentially constrain future governments.

Oldtime Labour, intent on rebalancing society by evening up opportunity, income and wealth, treated the economy as a smelly perpetual-motion machine to be taxed to feed its social ambitions.

In the “third way” 1990s Labour made the economy parallel with social policy: without a top-notch economy there would not be top-notch social services. There were baselines — workplace re-regulation, expanded social services and paybacks for special interest groups such as Maori, students and gays — but the economic horse must be nurtured or the social cart would stall.

Recently ministers have been talking up a new policy approach: meshing social and economic policies. The principle, Social Development Minister Steve Maharey told a forum last week, is that “successful economic policy produces a successful society and successful social policy produces a successful economy”. The parallel lines are being redrawn as a circle of influence, each on the other.

The firm is the meeting point. More productive firms make higher profits and can afford higher wages and salaries. A workforce that thinks and acts for the firm’s good can make it more productive. A firm that attends to “social policy” — employees’ skills, sense of being valued in the workplace, home life, child care, holidays and so on — can prompt in employees a wish to think and act for the good of the firm and so lift productivity and profits.

In theory that sets up a circular reinforcement: the firm looking out for staff, the staff looking out for the firm, output rising, profits rising and wages rising.

Translate this to the national level.

National wealth is mostly measured by GDP per capita — national output divided by total population. On this measure this country is around twentieth in the OECD, the rich nations club, far behind Australia.

Material wellbeing is crucial to overall wellbeing. But it is not everything. So since 2001 the Ministry of Social Development has been measuring and reporting a range of other wellbeing factors.

These include health (including life expectancy), knowledge and skills, wages, inequality of incomes and poor people’s incomes, housing, civil rights, cultural identity, leisure and recreation, the quality of air and water, safety and “social connectedness” (including trust in others, loneliness and contact between young people and their parents).

On many of these measures this country ranks higher in the OECD than its GDP per capita ranking. Other countries may have higher GDP per capita wealth but lower social wealth.

This differential in ranking can also change between periods within a country.

Moreover, it obviously depends in part on policy settings.

Maharey told last week’s forum there is a “necessary connection” between social and economic policy. He wants this made transparent by way of a report each parliamentary term. Should this be made mandatory? Officials and ministers have been kicking around a proposal for a social reporting law to require a regular independent social report and government response. (The government will in fact next week respond to the recent social wellbeing report with an “opportunity for all” statement.)

In concept this echoes Ruth Richardson’s 1994 Fiscal Responsibility Act (FRA) which has required governments to define a “prudent” fiscal policy, defend that in Parliament and then implement it or explain backslidings to Parliament.

While the FRA has done nothing to improve the quality of spending — a point made recently by the Business Roundtable, which argued for entrenched, referendum-based legal limits on taxing and spending — the transparency the FRA requires has locked in a practice of surplus budgeting and so some constraints on spending volumes, notably on social services.

In theory, requiring an independent social report highlighting outcomes and a formal response might likewise constrain governments — from pursuing programmes which do not improve the social indicators and from economic policies, such as spending cuts, which (initially) sour the social indicators.

You can see the attraction for Labour. Of course, ministers must first iron out some complex detail of what exactly to measure and how and also overcome fears of a boomerang when the economy slows. So it is not certain.

But if “social responsibility” became as embedded as “fiscal responsibility” in government practice and thus interlocked social and economic policy, it would likely push political debate on to Labour’s ground for quite a while.